CoinSwitch, a leading Indian cryptocurrency exchange, has initiated legal action against its rival platform, WazirX, in a bid to recover significant funds that have been trapped following a massive cyberattack. The attack, which has been described as the largest crypto heist in India’s history, resulted in the theft of $230 million worth of digital assets from WazirX.
This lawsuit comes more than a month after WazirX, one of India’s most prominent crypto exchanges, reported the security breach. In response to the incident, WazirX proposed a controversial “socialized loss” strategy, which aims to distribute the financial impact of the loss across its entire user base. The strategy has sparked significant debate within the industry, with many questioning its fairness and effectiveness.
CoinSwitch, which operates as an exchange aggregator, revealed that approximately ₹810 million ($9.65 million) worth of its assets are currently stuck on WazirX’s platform. This amount includes ₹124 million in fiat currency, ₹287 million in ERC20 tokens, and ₹399 million in various other cryptocurrencies. The company expressed its frustration in a detailed thread on X, noting that despite repeated efforts to communicate with WazirX since the day of the incident, no solution has been reached to recover the trapped funds.
In a recent development, WazirX announced that it had filed for a moratorium in Singapore’s High Court, a move intended to facilitate the restructuring of the company. As part of this process, WazirX plans to implement a scheme of arrangement that will allocate the available assets proportionally among its users, who are being treated as unsecured creditors. The exchange, whose clientele includes several Indian law enforcement agencies, estimates that the restructuring process will take at least six months. During this period, WazirX will explore various options to increase token recoveries.
CoinSwitch emphasized that the funds trapped on WazirX represent around 2% of its total assets. The cyberattack primarily affected ERC20 tokens, impacting less than 1% of CoinSwitch’s assets. To reassure its users, CoinSwitch, which is backed by prominent investors such as a16z, Coinbase, and Peak XV, stated that it is using its own treasury to maintain a minimum 1:1 ratio for users’ holdings on its platform. The company also highlighted that its overall assets are 1.51 times the user assets invested through its platform, ensuring strong financial health and stability.
To ensure seamless trading for its users, CoinSwitch maintains a small portion of its liquidity—about 7% of its reserves—on third-party exchanges. However, the lawsuit against WazirX underscores the significant challenges facing India’s cryptocurrency industry, which continues to grapple with regulatory uncertainty and growing security concerns. The WazirX incident has further shaken confidence in the sector, raising questions about the safety of digital assets in the country.
In the wake of the cyberattack, WazirX had initially stated that it planned to resume operations within a week, with a proposal to return only 55% of customer holdings. The remaining 45% would be locked in USDT-equivalent tokens, a move that has been met with skepticism by many users.
WazirX founder Nischal Shetty previously confirmed that the company did not insure customer funds, citing a lack of viable insurance options for the cryptocurrency sector. He also warned that the recovery efforts might take years, with no guarantee of success.
As the legal battle unfolds, the entire Indian cryptocurrency industry is watching closely, with the outcome likely to have significant implications for the future of digital assets in the country. Nischal Shetty was unavailable for immediate comment on the matter.
